Sum Insured in Standard Fire Insurance

Fire accidents can be devastating whether it takes place in your house, factory or any other workplace. This is why it is recommended to get your property covered under a fire insurance policy. Also, it is recommended by the insurance experts to set the sum insured amount according to the invested amount so that you do not have to put an extra amount to purchase another property.

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Significance of Aqequate Sum Insured

The sum insured determines the premium to be paid for the insurance policy and must represent the real value of the object to be insured. The excess sum insured does not confer any benefit to the insured, since the claims are subject to the main cause of compensation. If the advocate chooses a sum insured that is lower than the value of the property, the mid-rate limits the claim to that portion of the insured property.

SI of a Building

Usually, the part above the plinth level gets insured under the home insurance or fire insurance policy. Hence the evaluation of the building includes walls, doors, windows, fall ceiling, wall fitted items, etc. Boundary walls, although they are part of a complete building, must also be described separately or a separate sum insured must be deposited.

The cellar must also be specifically described or a separate sum insured must be specified in order to avoid later confusion. Only in the event of an earthquake/force majeure is there a risk that the foundation and the structure below the base must be insured and specifically described or a separate insured sum must be stated in order to avoid any further confusion.

The acquisition cost of the building or the book value of the building are not directly relevant to the sum insured unless they can contribute to its current valuation. In general, the valuation of the building is determined by the built-up area and its construction specification, taking into account the current construction costs of similar buildings.

An appraisal can be obtained from any architect for evaluation on a market value or restoration value basis and the sum insured is therefore set at 
for the fire policy accordingly.

Reinstatement Value Vs Market Value

Reinstatement value is the amount you get that is equal to the new property you choose to purchase. The significance of reinstatement value here is that the insurance company will provide coverage as per the value of the new property you are willing to purchase.

On the opposite hand, the market price is the value of the property at which the property of the same age and condition is brought or sold. underneath the valuation at market value each depreciation because of age, wear & tear and appreciation due to inflation should be taken into account.

Plant, Machinery & Furniture, Fixture & Fitting

Plant, Machinery and Furniture, fixture and fitting of the building are also covered under the fire insurance policy. They can be insured on depreciated value or reinstatement value. The insurance company takes the age of the plant and machinery, technological change and advancement, availability of a similar product in the market along with the cost and everything related to that machine and plant.

The valuation of P & M is to be determined, commonly has a truthful concept of the elements unique and might shape an amazing concept of the triumphing valuation. Services of a Plant & Machinery Valuer can be received if required. Separate sum Insured ought to be constant for P & M and FFF. It is likewise really helpful to have personal sections of the Plant indexed and valued one by one to keep away from prolonged documentation at the time of claim.


You make a big investment in building a home, factory, etc. and fire accidents can damage a lot and put a big hole in your pocket. Hence purchasing a fire insurance policy to protect it against any unforeseen accident is necessary. Also, you are required to keep the above-written aspects in your mind while purchasing the insurance plan. It will help you in deciding the right insurance policy that would meet your requirements.

Written By: PolicyBazaar - Updated: 18 August 2022